Anymore, governments seem to be more and more in the business of picking winners. They tax you and me and then a few uckity uks at the Federal, state and even local level give away our tax dollars to public and private profit making companies that they “choose” to endow. In this post I’ll look in detail at how in my estimation about $250,000 of your taxes per year plus perhaps $5 million in tax credits to purchase equipment will be given to a muli-billion dollar French company, St. Gobain (StG) to set up shop in Goodyear and add 50 jobs to the local economy. I have had to make some guesses because GY does not speak to me anymore and I don’t think StG would agree to an interview for this article, but I think these are in the right ballpark.

The city of Goodyear, in my opinion, is already bankrupt. The official bankruptcy proceedings have not started yet, but in the meantime Goodyear city council and city management just can’t seem to give away GY taxpayers’ money fast enough to foreign corporate fat cats like St. Gobain. The question is, do they need to do this in order to attract these businesses? And what about the additional costs of new business operations to a town? I thought the reason we paid taxes was to defer the service costs that we all bring to a location when we move there like additional police and fire costs and road maintenance. Road costs for businesses who transport their goods in 80,000 pound 18 wheelers and additional fire protection costs for manufacturing operations that probably use flammable and perhaps dangerous chemicals should be pretty high don’t you think?

A separate question in this case is, how does GY make their cost to benefit decisions to give your money away, and how do you think an already near bankrupt city is doing in that regard ? I’ll look at that in more detail in my next post.

Now let’s take a look in detail at what GY’s newest French neighbors, Saint-Gobain (StG), are going to get as they sidle up to the US government trough;

Federal

For investing in renewable energy, the newspaper says StG will get a credit for 30% of it’s capital investment at the site. Let’s say they invest $15 million or about equal to what I estimate below the current site is worth. That’s $5 million of your federal tax dollars going to StG.

Pay over half their employees $41,314 per year. (big deal, @ 40 hours per week, that is $20 per hour and it’s only half of them)

Pay 80% of their health care costs, but it does not specify what those costs must be.

Invest $250,000 per year in the applicable site they qualify. When the feds are providing 30% of the capital they’ll maximize this.

Create 3 jobs per $1 million of capital invested.

What do they get?

Income tax credits. They will pay no income taxes on income earned at the site up to 10% of their capital investment in the site. How many French accountants do you think it will take to make certain that every possible overhead and operating cost possible is charged to some other location and that every possible capital investment that can reasonably be charged to this site is charged in order to maximize the Goodyear site’s 10% of capital measure and income tax credit? Pretty easy.

They will pay GY only half of the property taxes that they would have otherwise paid by having their property class changed. I can find only a limit of either 10 or 15 years based upon employee salary. So for example, on the empty building that StG just occupied, GY will lose half the currently collected property taxes from that property. If the building and site is worth (I’m guessing here) $14 million and we pay 1% per year in property taxes that would be $70,000 per year in savings.

According to StG annual report they generate about $300,000 per employee. Times 50 jobs equals $15 mil per year. They do this while earning about a 7.5% operating margin, but I’ll assume that this new product will be in the higher range or they would not be making the capital investment and use 10%. I suspect it is well above that. So StG should have $1.5 mil in income on which AZ taxes @ 7% or $105,000 per year.

Local Goodyear.

Well who knows what Goodyear will offer in additional incentives. The deal for Sub-Zero was nearly $100,000 per employee hired to a total of over $750,000 or nearly 75% of what Sub Zero would have paid GY in taxes over the next seven (7) years. Expect StG will get as good or better deal which will probably cover the rest of its property tax costs after they get the 50% reduction from the state or another $70,000 per year.

So, what does GY get immediately from this?

Some local restaurants will sell a few more sandwiches at their lunch business.

Home and land developers who are the major contributors to GY elected officials campaigns are happy since some of those new employees will buy homes (two or three, maybe?) which will add a small amount in property tax.

I can’t think of anything else since they’ve given away nearly all the positive tax impacts that a new business brings for the foreseeable future.

So in total how much of your tax dollars are going to be used to pay the new French company? About $250,000 per year plus perhaps paying for $5 million or more of StG’s initial investment.

In summary? These are the most expensive sandwiches you can possibly buy.

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The “average” resident just doesn’t get it. Goodyear does this kind of creative incentive for just about every business that comes into the city, they even refund back to some. You’re right, Goodyear has been bankrupt for a long time, they just keep digging that hole a little deeper every day…